Part II. Calculations (30 points; 2 points for each sub-question) Please fill in
ID: 2589949 • Letter: P
Question
Part II. Calculations (30 points; 2 points for each sub-question) Please fill in the blank, and show your workout (calculation or explanation). The workout is for partial credit when your answer is wrong. 1.(6 points) A bank can charge a corporate borrower 625% on a loan. The interest and no interest cost of the loan is 5.85%. The borrower is asking for a $600,000 loan. The extreme default rate on this type of loan is 4.0%; and when default occurs, about 85% of the loan amount is lost. The net income on the loan in a year is 2 193. 75 Hint: (0.0625-0.0585) *S600,000 Workout: The loan risk (or value at risk) is 2yco Workout: 400,000 x 357- y % The RAROCis 107S Workout: k NI/L oan r's 2193, 75/ 2o, yooExplanation / Answer
Your Net income on a loan in an year is wrong,
net Income on the loan = (borrower rate - interest and non interest cost of the loan) * loan amount
= (0.0625 - 0.0585) * 600,000
net Income on the loan= 2400
(2) 2nd part is correct
(3) RAROC = Net income / loan risk
= 2400 / 20400
RAROC = 11.76%